Securities Industry Commentator by Bill Singer, Esq

October 23, 2017

Public Company Accounting Oversight Board; Order Granting Approval of Proposed Rules on the Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, and Departures from Unqualified Opinions and Other Reporting Circumstances, and Related Amendments to Auditing Standards  (Securities and Exchange Commission Release No. 34-81916; File No. PCAOB-2017-01 / October 23, 2017) The SEC approved a significant change to an auditing standard issued by the Public Company Accounting Oversight Board (PCAOB). READ Full-Text Order.

Former Global Head of HSBC's Foreign Exchange Cash-Trading Found Guilty of Orchestrating Multimillion-Dollar Front-Running Scheme (Press Release, Department of Justice 17-1181)

After a four-week trial, UK citizen Mark Johnson, the former head of global foreign exchange cash trading at HSBC Bank plc, a subsidiary of HSBC Holdings plc (collectively HSBC), was found guilty one count of conspiracy to commit wire fraud and eight counts of wire fraud  in connection with his role in a front-running scheme to defraud an HSBC client out of more than $7 million. As set forth in the DOJ Press Release

According to the evidence presented at trial, in November and December 2011, Johnson cheated an HSBC client out of millions of dollars by misusing information provided to him by a client that hired HSBC to execute a foreign exchange transaction related to a planned sale of one of the client's foreign subsidiaries.  HSBC was selected to execute the foreign exchange transaction - which was going to require converting approximately $3.5 billion in sales proceeds into British Pound Sterling - in October 2011.  HSBC's agreement with the client required the bank to keep the details of the client's planned transaction confidential.  Instead, Johnson misused confidential information he received about the client's transaction to cheat the client out of millions of dollars, the evidence showed.  

Shortly before the transaction, which occurred in December 2011, Johnson and other traders acting under his direction purchased Pound Sterling for their own benefit in their HSBC "proprietary" accounts.  Johnson then caused the $3.5 billion foreign exchange transaction to be executed in a manner that was designed to "ramp," or drive up, the price of the Pound Sterling, benefiting their proprietary positions and HSBC at the expense of their client. 

As part of their scheme, Johnson and his co-conspirators made misrepresentations to the client about the transaction that concealed the self-serving nature of their actions.  In total, Johnson and the traders he supervised generated HSBC profits of roughly $7.5 million from the execution of the FX  transaction for the victim company.   

Trick or Treat for IRS

It's nearly Halloween and that's means it's time for "Trick or Treat." Permit me to dazzle you with an amazing twofer that's part trick and part treat!

Consider this intriguing headline because, I gotta tell you, it sure as hell stunned me:

Enid Resident Sentenced to 33 Months for Theft of Treasury Checks and Treats to Federal Agent 

(Press Release, Department of Justice, October 23, 2017)

In case  you think that I'm making this up (and before the Feds catch their mistake and change it) you can read the posted headline here:

Before I explain to you what the federal criminal case was about, go ahead, take your best shot -- your very best shot -- at trying to guess what is a federal agent's "treat," and exactly how stealing one amounts to a federal crime.

I'll give you a minute or so to ponder that question about what's a federal "treat" crime.

Okay, time's up.

According to the DOJ Press Release:

Veronica Lloyd, 46 of Enid, Mississippi, was sentenced Thursday, October 19, 2017, by United States District Judge Glen H. Davidson, in Aberdeen, Mississippi.  Lloyd was sentenced to serve a total of thirty-three (33) months in federal prison following by 3 years supervised release and was ordered to pay $52,341.67 in restitution to her victims.

Figured it out yet? No, okay, let's see if this additional language from the DOJ Press Release helps:

On June 21, 2017, Lloyd pled guilty to converting to her own use a Treasury Check issued to another person, using threats of force to impede a Department of the Treasury Special Agent, and committing wire fraud.
The charges were the result of a joint investigation by the United States Attorney's Office, the Department of the Treasury Inspector General for Tax Administration, and the Internal Revenue Service Criminal Investigation Division, into allegations that Enid, MS residents had monies from their yearly income tax refunds taken illegally and that subsequently they were contacted by a fictitious "IRS agent" and told not to contact the IRS about the issues.  Lloyd also threatened to strike an agent of the Department of Treasure with a shovel, and later investigation revealed her use of interstate wire communication to commit fraud.
Someone at DOJ clearly has goblins on their mind. As best I can tell, the Press Release confused "threats" for "treats"! You can read the full release at

When folks attempt to decipher a given Wall Street regulation, they often start with what they think is the "commonsense" answer. That's a waste of time.  Go directly to the actual Rule (assuming that you know which one covers your issue) and start reading the verbose, ponderous, and confounding language. 

No, it's not you; no matter how many times you read that crap, it still doesn't make sense. 

What should you do? 

If you ask five compliance officers, you'll likely get a consistent "Don't do that." 

If you ask five regulatory lawyers, you'll get ten different opinions at $750 an hour (cash only and we'd like two forms of photo ID).

Thus, the stage is set for today's Blog consideration of FINRA's "Suitability Rule" READ